Reconstructing Market Boundaries to Create a Blue Ocean Strategy

Author: tracysigler | Posted: July 14th, 2011 | | Tags: Blue Ocean Strategy, BOS | No Comments »

(Photo by buck82)

If you want to make your business competition irrelevant you will need to pursue a Blue Ocean Strategy. Creating something innovative in a market is not the easiest thing to do. If it were someone in your space would already be doing it. As Dharmesh Shah of HubSpot pointed out when he commented on a previous post, sometimes Red Oceans seem more attractive because there are established markets, pricing, etc. If you want to go Blue it’s going to take some real effort.

The authors of Blue Ocean Strategy (BOS) elaborate on six paths to reconstruct market boundaries and break out of red oceans. The first is to “look across alternative industries.” There is a difference between substitutes and  alternatives.

Substitutes for products and services come in different forms but essentially have the same purpose. For example, to get more customers small businesses could spend money on online advertising (Facebook, Google AdWords, Groupon, etc.), send direct mail, create fantastic content on a blog, or offer a free trial of their products. These things have very different forms, but the same function: creating more customers.

Alternatives can take different forms and functions but serve the same objective. Let’s say the objective is profitability. To increase profits a company could embracing lean manufacturing principles, strategically raise prices on products and services in high demand, invest in marketing to scale up, cut costs by outsourcing things that are not core competencies, etc. These initiatives are all very different, and solve different problems. As a business owner you couldn’t substitute one for another, but you may have to choose which alternative to pursue. Everyone has a limit to the resources available.

As the authors point out in BOS:

“In making every purchase decision, buyers implicitly weigh alternatives, often unconsciously. …The thought process is intuitive for individual consumer and industrial buyers alike.

For some reason, we often abandon this intuitive thinking when we become sellers. Rarely do sellers think consciously about how their customers make trade-offs across alternative industries.

…By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything else, you can create a blue ocean of new market space.”

I think about food a lot. Grocery stores, of course, offer a wide variety meal options. Ingredients to make your meal from scratch, frozen dinners, and fully prepared foods ready to go. Most people would appreciate those options. Also, the cost is relatively low. Many people probably don’t like making the trip, standing in line to check out, creating menus for the week, making shopping lists, cooking if necessary and the related clean up.

Restaurants offer the options of sit-down dining, takeout, and in some cases delivery. All of those are more expensive and usually less healthful. Certainly the additional cost does not attract buyers, neither do unpredictable wait times, food and service quality. Of course restaurants often have some entertainment value in the forms of socializing and general customer experience.

I think it’s quite possible that there is a Blue Ocean business somewhere between these two. Possibly a new type of localized, scheduled, prepared and delivered meal service with price points between the two alternatives. With some entertain value? I am not talking about the typical meal delivery services that pick up food from any local restaurant, or mail order stuff that comes in bulk. What’s out there now?

The space between the alternative industries is where the opportunities are. Why do buyers of alternative A choose that option? Why do buyers of alternative B choose that option? What are the aspects of each alternative that buyers dislike or don’t want to pay for? How could a business go for a Blue Ocean Strategy by combining the best and throwing out the rest of each? That’s the “value innovation” that will put a company, product or service in a class all by itself.

More posts about Blue Ocean Strategy.

---